What is the current position on VAT and school fees?

Under existing VAT law, education and goods and services closely related to education such as accommodation, catering, transport are all exempt from VAT. As charitable institutions independent schools also receive 80% relief on business rates.

What are Labour’s plans?

Labour has stated that if elected it intends to introduce new laws which would remove both the VAT exemption and the business rates relief with the likely effect that school fees will significantly increase. In answer to a question we have received frequently: yes this will affect tuition fees and boarding fees. Secondly, no, in our view payment of multiple years’ fees in advance will not get around the issue.

How can I help?

The most straightforward method is for you to make outright gifts of cash to the family member in question. These will be treated as potentially exempt transfers (PETs) for Inheritance Tax. Alternatively, you could transfer cash directly to the school. It is believed (though less clear) that HMRC will also treat such transfers as PETs.

What is a PET?

This question is relevant for the assessment of Inheritance Tax. Gifts of cash by individuals to other individuals are not chargeable to Inheritance Tax at the time the gift is made but are potentially chargeable if the donor dies within seven years of the gift. In short, if you wish to avoid Inheritance Tax on the gift, you must survive it by at least seven years.

What if I do not survive seven years?

If you die within seven years of making the gift then the sum will become chargeable to Inheritance Tax together with the rest of your estate. The rate at which tax is charged on the gift will depend on whether the sum gift(s) exceed the nil rate band and how long you survive after making it. For more advice do contact us.

Are there any other ways?

If you can afford to redirect some of your regular income to your family member on a regular basis (while retaining enough to maintain your usual standard of living) then such regular gifts of income are exempt for Inheritance Tax purposes, whether or not you survive them by seven years.

Anything else?

Use your annual exemption. Everyone may give away £3,000 in a year without it being brought into assessment for Inheritance Tax, and any unused part of this exemption can be rolled over into the following year (but only once).

What about trusts?

Trusts remain a very useful tool for a number of reasons but in this instance they do not provide any particular magic wand. If you have lots of surplus capital and you want to reduce the Inheritance Tax that may be payable when you die, you could consider settling some of it on a discretionary trust for your family. You can give away or settle up to £325,000 every seven years without incurring any immediate charge to Inheritance Tax. You will definitely need to take specialist trust and tax advice before doing this, but we can help with that.

Are there any other taxes I should be aware of?

Capital Gains Tax is a possibility but if the gifts are in the form of cash then Capital Gains Tax is not relevant.

Any final points?

Ensure that your will is up-to-date and that you have Lasting Powers of Attorney in place. We say this to all our clients.

Did you know that if you leave 10% of your estate in your will to charity then the rate of Inheritance Tax that applies on your remaining estate is not the usual 40% but the lower rate of 36%? You might even consider giving some or all of that 10% to a charitable educational establishment to help them ride the VAT storm. And/or why not make a charitable gift now and see its benefit in your lifetime rather than leave it until after your death?

This publication is a general summary of the law at the time of publication. It should not replace legal advice tailored to your specific circumstances.

If you would like to find out more, please email Arthur Byng Nelson.

These diaries cover the entire life and career of one of the most prominent figures in the British Army in the twentieth century and have been eagerly awaited by historians and enthusiasts alike. The extraordinary diaries of Lord Ironside were first targeted by Professor Sir Michael Howard when he created the Liddell Hart Centre for Military Archives back in 1964: after a remarkable 60 years, they are finally in the ownership of King’s College and the Liddell Hart Centre for Military Archives.

Arthur Byng Nelson, Head of the Art & Heritage Department at Sherrards, advised the Ironside family regarding these special papers and facilitated the transfer to the nation in lieu of inheritance tax for the benefit and study of the general public.

To commemorate this event King’s College London Archives and the Sir Michael Howard Centre for the History of War are hosting a talk on Tuesday 12^th March from 5:30 pm in the Archives Reading Room, at the Strand Building. At this gathering, esteemed speakers Professor Jonathan Fennell and Professor Andrew Stewart of King’s College London will delve into the significance of this collection for the study of the history of the world wars and beyond.

To sign up, click here and secure your place to celebrate the legacy of Field Marshal Lord Ironside and the invaluable contribution of his diaries to the understanding of military history.

To find out more about how we can help with your Art & Heritage matters, click here. 

For some, this involves considering the legal and financial implications of marriage. Beyond the emotional and romantic aspects, individuals may question whether tying the knot is a strategic move to save inheritance tax.

Marriage has long been considered a union founded on love, trust, and commitment. Choosing a life partner based on shared values, emotional connection, and mutual support is a timeless concept that transcends financial considerations. Whilst love is invaluable, couples may also find themselves facing practical questions about shared finances, joint assets, and planning for the future.

One financial consideration that arises in the context of marriage is inheritance tax (IHT). In many jurisdictions, married couples enjoy certain tax benefits, including exemptions and deductions related to inheritance. However, it is crucial to approach this aspect of marriage with a clear understanding of the laws and regulations governing IHT in your specific location as these can vary from country to country.

It is a widespread misconception that cohabiting couples enjoy the same legal rights as their married counterparts. In reality, cohabiting couples possess minimal rights, even if they share children. In the unfortunate event of a partner passing away without a will, the surviving partner inherits nothing.

Living in a deceased partner’s property or jointly owned property does not guarantee security- the surviving partner could face eviction or the forced sale of their home. They may be forced to bring a claim on the estate which could prove difficult if the beneficiaries of the estate are the unmarried couple’s children. Additionally, complications may arise if a person dies while cohabiting with a new partner amid an ongoing, yet unfinished, divorce, potentially leading to disputes with the family.

Having a Will in place does not exempt one from IHT if the deceased’s estate surpasses the IHT threshold. However, for married or civil partnership couples, the spouse exemption allows the transfer of assets upon death without incurring inheritance tax. While standard IHT applies to the estate exceeding £325,000 in value, married couples benefit from an exception that disregards this threshold, eliminating the need to pay IHT for the surviving spouse or civil partner.

As Valentine’s Day approaches and couples contemplate taking their relationship to the next level, the intersection of love and finances becomes more apparent. Whilst the allure of potential tax benefits may be enticing, it is crucial to approach marriage with a holistic perspective.

Should love not be the driving force behind such a significant decision, with legal and financial considerations serving as complementary elements?

To find out more, email Nicole here. 

Inheritance tax

As a general rule assets of a deceased over the value of the nil rate band (currently £325,000) are chargeable at 40% inheritance tax.

The Acceptance-in-Lieu scheme (“AIL”)

Since 1910 the UK government has encouraged those administering estates, responsible for ensuring that the tax is assessed and paid, to consider offering works of art and important heritage objects to the nation in lieu of inheritance tax.

In addition to the advantage of being able to meet a tax liability in kind, the scheme offers a financial sweetener (known as the douceur) to provide an even greater incentive to make use of the scheme.

The criteria

The art or objects must be ‘pre-eminent’: in other words, of particular historic, artistic, scientific or local significance, either individually or collectively, or associated with a building in public ownership. A very wide range of objects is accepted each year as may be seen in the annual reports published by the Arts Council.

The art or objects must be in an acceptable condition.

The process

Offers must be made to the Heritage Team at HMRC. Those offers must be approved by the Secretary of State for Digital, Culture, Media and Sport (or the appropriate Minister in the devolved governments in Scotland and Wales) who is advised by Arts Council England’s AIL Panel. The AIL Panel consists of independent experts who seek specialist advice on the art or objects offered.

Key elements of any offer will be a valuation and justification for that valuation (generally independent opinion from more than one source is helpful); an explanation of why the object is considered pre-eminent; digital images and details of where the object can be inspected; evidence that the offeror has good legal title to the object (and details of its ownership between 1933-1945).

The douceur

In order to attract some of the finest works into national ownership the government offers a financial incentive to those administering estates. The sweetener consists of a 25% “cash-back” calculated against the inheritance tax that would normally have been due.

Example: Mr Gombrich’s estate contains an important Modern British work on paper. At date of death the piece was valued by an independent expert at £100,000. Mr Gombrich’s son is the sole residuary beneficiary and executor and decides to offer the painting in lieu of the inheritance tax liability of £40,000. The AIL Panel confirm the piece to be pre-eminent and agree a value of £100,000. The douceur is calculated as 25% of the inheritance tax due on the painting: 25% x £40,000 = £10,000. Gombrich junior receives £70,000 for the piece, the tax liability is cleared and the nation gains a pre-eminent work for the public to enjoy.

Conclusion

Every case will be different. The scheme offers an opportunity to make a not-insignificant tax saving whilst also having the benefit making the item(s) available for the appreciation of the general public. At the same time do bear in mind that there will be occasions when an item might achieve a better overall result (tax liability included) when sold on the open market (or indeed by a private sale). If you are considering your options I would be very pleased to advise.

The intestacy rules (when you die without a valid will) are set by law and can be summarised as follows:-

• Married/civil partner with no children. If you die without a Will everything goes to the spouse or civil partner
• Married/civil partner with children, and you die without a Will assets up to £250,000 and personal possessions (not land) go to the spouse or civil partner. Assets above that limit are split 50/50 between the spouse and the children.
• Unmarried, living with someone, with or without children, if you die without a Will the cohabitee receives nothing. Where there are children and/or grandchildren, they get everything. Where there are no children, the deceased’s assets go to their siblings and parents.

Where there are no children or other dependants, no parents, grandparents, siblings, cousins, nephews, nieces or aunts and uncles (blood relatives not relatives by marriage), the whole estate goes to the Crown. To have share in the estate the cohabitant would have to make a formal claim under the Inheritance (Provision for Family and Dependants) Act unless all other potential beneficiaries were over 18 and agreed that some assets passed to the co-habitant.

What does all this means for inheritance tax

One of the key inheritance tax perks is that spouses/civil partners can bequeath any amount to each other tax free. However giving assets to children will trigger an inheritance tax bill if the gift exceeds the “nil rate band” or threshold of £325,000 per person plus an additional sum (currently £125,000 as long as the whole estate is not worth more than £2.2Million) in relation to homes passed to direct descendants.  If everything passes to a spouse/civil partner, then on their death, the first spouse/partner’s tax free threshold can be added to their own – thus doubling what can pass before tax. Everything that passes down above the tax free allowances is taxed at 40% of that value.

Avoiding the intestacy rules, is not the only reason it is a good idea to make a Will. With a Will:-

• You leave clear instructions about how your estate is to be distributed.
• You choose your own executors – the people who manage the estate.
• You appoint guardians to look after your children if they are under 18, until they come of age. You can also make financial arrangements for their benefit.
• You can make specific gifts to friends or family. These can range from items of jewellery to sums of cash.
• If you have remarried, you can ensure any children from your first marriage get a share of your estate.
• You to make gifts to charities
• You may avoid family disputes.

And just in case you were wondering, making a Will does not bring forward the date of your death!

Contact Nicole for more information.